WASHINGTON – Oil prices climbed more than $1 a barrel Monday and settled at their highest level in more than seven months as geopolitical friction kept traders nervous about supplies.
Chief among the oil-market fears these days are Iran's nuclear standoff with the international community and violence in Nigeria that has forced the shutdown of more than half a million barrels a day of supply. Both Iran and Nigeria are members of OPEC.
Another source of concern is that more than 300,000 barrels per day of Gulf of Mexico production remains off the market as a result of last summer's hurricanes.
"The all-time highs (are) squarely in focus," said oil broker Andrew Lebow of Man Financial in New York. On Aug. 30, front-month crude-oil futures traded as high as $70.85, then settled at $69.81.
On Monday, light sweet crude for May delivery rose $1.35 to settle at $68.74 a barrel on the New York Mercantile Exchange. It was the highest close since Sept. 1, when Nymex futures settled at $69.47.
At the pump, regular unleaded averaged $2.68 a gallon, 32 cents higher than a month ago and 40 cents higher than a year ago, according to Oil Price Information Service of Wall, N.J.
May Brent crude on London's ICE electronic exchange rose $1.57 to $68.86 a barrel.
The U.N. Security Council has demanded that Iran suspend its uranium enrichment program. But Iran has so far refused, saying the project is for research and not for development of nuclear weapons.
U.S. administration officials have left open the possibility of a military response if Iran does not end its nuclear ambitions, but President Bush on Monday sought to dampen the idea of a U.S. military strike, saying that force is not necessarily required to stop Iran from having a nuclear weapon.
Still, oil prices were rising Monday partly in reaction to the possibility of a U.S. strike on the oil-rich nation, analysts said.
"The traders are looking at the geopolitical risk in Iran. They are worried that if the U.S. attacks Iran at some stage, it would impact crude-oil prices in the future, so they don't want to sell," said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.
Vienna's PVM Oil Associates noted continued "supply worries in Nigeria, where more than 500,000 barrels a day of upstream capacity remained shut in" following recent militant violence — and the threat of more to come.
"We might go up and test $70," said ABN Amro broker Lee Fader, but he believes a significant supply disruption will be needed to push prices much higher than that.
Oil analyst Timothy Evans of IFR Energy Services believes prices are too high, given evidence of a slowdown in demand growth. For example, the most recent U.S. government data show that first-quarter demand for jet fuel and distillates such as heating oil and diesel were slightly lower than a year ago.
"Refiners are under some pressure to hold back production in order to prevent inventories from ballooning," Evans said.
Still, Energy Department data show U.S. gasoline demand was up nearly 1 percent in the first quarter, compared with a year earlier.
Gasoline futures rose 3.24 cents to settle at $2.0092 a gallon while heating oil rose by 6.28 cents to close at $1.9454 a gallon. Natural-gas futures finished 13.9 cents higher at $6.882 per 1,000 cubic feet.